Hargreaves Lansdown has developed a set of tools to measure savers' financial resilience and see what new challenges people are facing.
The firm has partnered with Oxford Economics to launch the HL Savings and Resilience Barometer, measuring the financial resilience of the nation every six months.
The measure is based around five pillars of financial behaviour that Hargreaves Lansdown said were “fundamental” for households to balance financial demands while being aware of risks.
These are controlling your debts, protecting your family, saving for a rainy day, planning for later life and investing to make more of your money.
Hargreaves Lansdown stated: "The barometer is unique because instead of looking at specific aspects of our finances in isolation, it draws together 17 data points from a number of official data sets, across these five pillars, to provide a holistic measure of the state of the nation’s personal finances."
The aim of the tool is to help improve the decisions individuals and policymakers make to improve financial resilience.
The firm has also come up with a comparison tool so savers can compare their financial resilience with others. This can be done for age, region or income.
Hargreaves Lansdown said it will build on the functionality of this tool over time.
Chris Hill, chief executive officer of Hargreaves Lansdown, said: “Investing remains a minority activity and if we are serious about improving financial resilience for all, we need to make saving and investing an everyday activity.
“Several steps would help, including better financial literacy, and the financial sector can play an important role here."
He added: "One vital step forward would be changes in the rigid advice rules to allow firms to give people simple, more personalised, guidance and nudges to help them improve their financial outcomes."
Uneven development during pandemic
The first results of its barometer found financial resilience has increased through the Covid-19 pandemic, but that this increase has been uneven.
It found the increase was driven by people spending less due to social distancing measures, with people instead seizing the opportunity to save.
But the level of saving was uneven, with the research showing that whilst high-income households (those in the top 20 per cent pre-pandemic) reduced their expenditure by 14.6 per cent on average, low-income households (in the bottom 20 per cent pre-pandemic) saw their spending flatline.
As a result, despite seeing their incomes well protected, low income households enjoyed the least significant improvement in their savings rate during the pandemic.
The firm also found a third of the UK does not have savings that would cover at least three months' worth of essential expenditure.
When looking at people’s pensions, fewer than 40 per cent of working age households are on track for a pension income of £26,000 – the current average.
Pension saving is even worse among the self-employed with only 22 per cent saving enough.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said during the pandemic those on lower incomes, younger people, and renters, all faced major challenges to keep their head above water.
But said it was not just these vulnerable groups with worrying gaps in their finances.
“The barometer delves into how every group measures up against the five pillars of financial resilience, and produces some unexpected findings,” she said.
“So, for example, it identifies that even among high income families, a surprising number don’t have enough rainy day savings or aren’t on track for pension savings for their time of life.
"Meanwhile almost half don’t have enough life cover to protect their families. They’re also exposed to variable rate borrowing, which could leave them vulnerable at a time of rate rises.”
amy.austin@ft.com
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